Canada’s Reefer Madness Reaches New Heights as Rivals Merge

Canopy Growth Corp., the largest company in Canada’s rapidly developing marijuana industry, agreed to buy competitor Mettrum Health Corp. for about $430-million to expand production as the government moves toward legalization.

The all-stock deal values Mettrum at $8.42 a share, the companies said Thursday in a statement, representing a 42-per-cent premium to Wednesday’s closing price.

Marijuana companies rose in Toronto trading, extending huge gains this year, with Canopy’s shares quadrupling. Canada’s plan to legalize recreational use in 2017 has attracted a wave of capital in anticipation of billions of dollars of new revenue. Expectations were further heightened on Wednesday after the country’s Task Force on Marijuana Legalization and Regulation delivered a report to the government on how the drug should be legalized and regulated. The group said its recommendations will be made public in mid-December. The market value of Canada’s six largest marijuana companies has swollen to more than $3.6-billion.

Canada is the best marijuana play for investors because it is the first member of the Group of Seven countries that is moving toward legalization, and there could be $7-billion in sales by 2024, said Mason Brown, an analyst at M Partners. Still, how the country will regulate, tax, market and distribute the products remains unknown and could affect margins and revenues, he said.

Further consolidation will probably occur as bigger players make acquisitions, Mr. Brown said. There’s more than 35 licensed companies currently, and an increase of deals will probably leave five to eight companies controlling the bulk of the market, he said.